Bankrupt Aceto plans chemical disposal

Aceto, a US-headquartered distributor active in the pharmaceuticals, chemicals and related sectors, has entered Chapter 11 bankruptcy and announced plans to sell the chemicals related part of its business. It has consequently entered into a ‘stalking horse’ agreement with New Mountain Capital, under which it will sell these interests for $338 million plus the assumption of certain liabilities and subject to certain adjustments, on a cash- and debt-free basis, unless a better bid comes forward before the end of its fiscal year on 30 June.

The company, which owed its creditors about $349 million, made a 10-Q filing with the Securities & Exchange Commission in New York on 20 February in order to facilitate a court-supervised auction of its business segments Section 363 of the US Bankruptcy Code, according to analysts. It is expected that shareholders will lose their investments.

The parts of the business covered by the agreement with New Mountain are the Pharmaceutical Ingredients and Performance
Chemical segments, plus the Nutritionals portion of the Human Health segment. The deal also covers the company’s non-US chemicals business subsidiaries, although they are not part of the bankruptcy filing.

Aceto likewise plans to sell its struggling generic drugs business, Rising Pharmaceuticals, in a similar process. It has also entered into $60 million debtor-in-possession financing from a syndicate led by Wells Fargo in order to secure enough working capital to continue normal business while the process of selling these operations goes ahead.

CEO William Kennally said that the board had for several months “been conducting a comprehensive evaluation of strategic alternatives to address the company’s debt burden in consultation with its financial and legal advisors, while continuing to work cooperatively with its lenders”. It concluded that this was the best option, as it  “provides stability and deep capital resources to the company and, importantly, ensures the continuity of customer, partner and supplier relationships critical to the company’s businesses operations and success”.

Aceto dates back to 1947 and has business operations in nine countries. It distributes over 1,100 chemical compounds that are used mainly as finished products or raw materials in the pharmaceutical, nutraceutical, agricultural, coatings and industrial chemical industries. It has offices in both China and India active in sourcing these materials.

The generics business had been struggling for some time and, in April 2018, Aceto announced that “light of the persistent adverse conditions” in this market, it was negotiating with a waiver of its credit agreement with respect to its total net leverage and debt service coverage financial covenants for Q1 2019 with its bank lenders. It anticipated recording non-cash intangible asset impairment charges of $230-260 million on certain current and pipeline generic products “as a result of continued intense competitive and pricing pressures”.

In addition to making changes at the top, Aceto said at the time that it had “initiated a process to identify and evaluate a range of strategic alternatives”, potentially including sale of a key business segment(s), a merger or other business combination with another party, continuing as a standalone entity. It retained a financial advisor and legal counsel to assist in this process, but in the end no solution was found.